Page 4 - ISQ October 2022

INVESTMENT STRATEGY QUARTERLY

The UK: Mini-Budget, Massive Ramifications

Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services Ltd*

It is the absence of facts that frightens people: the gap you

open, into which they pour their fears, fantasies, desires

– Hilary Mantel, Wolf Hall

In October 1973, the British progressive rock band Genesis The Truss-led administration has nailed its colours to the mast;
released an album, the title of which has gone down in it will pursue growth at all costs. The first of what amounts to a
popular music legend as one of the all-time greats, two-pronged approach, as identified by the embattled Chan-
cellor Kwarteng in his mini-Budget, is to borrow aggressively
“Selling England By The Pound”. The album was the now in the hope that the economy can generate sufficient
band’s response to the disastrous Anthony Barber Budget growth to pay off its debts in the future. The second prong,
of the previous year, which played a substantial part in the with electioneering written all over it, is that providing
eventual unseating of the then Prime Minister, Mr Edward generous hand-outs to the wealthy will ultimately percolate to
the less well-off over time. However, this policy has partially
Heath. Fast forward fifty years and the newly installed backfired, the 45% top marginal tax rate cut now abandoned. It
British premier, Ms Mary Elizabeth Truss, “Liz” and her is indeed ironic that US President Biden, doing his bit for the
Chancellor of the exchequer, Mr Kwasi Kwarteng have an Democratic Party cause ahead of Congressional midterm
equally grand and ultra-high risk plan to reinvent the elections in November, has recently stated that he is “sick and
tired of trickle-down economics. It has never worked”.
United Kingdom as a high-growth/high wage economy.
On the subject of the United States, Ms Truss, like her prede-
If the plan works, it will surprise all those who question the cessor before her, seems hell-bent on antagonising the UK’s
effectiveness of “trickle-down” economics. If it fails, confidence allies and trading partners whilst standing unswervingly
in the UK’s political economy, sovereign bond market and together with regard to Russia and its military (and now
currency will be called into doubt. A “sterling crisis”, if that is political) adventurism in Ukraine. Mr Biden has made clear that
what it comes to, would have disastrous consequences as a much-vaunted, post-Brexit trade deal with the United States
import costs would rise yet further against a backdrop of an is not going to happen, while simultaneously, the UK adminis-
already severe terms of trade crisis brought about by sky high tration clearly believes that there are votes to be gained
energy and food prices, that and the escalating cost associated through antagonising Europe by reneging on the trade treaty
with servicing debts denominated in overseas currencies. regarding Northern Ireland. At a time when nations need to
*An affiliate of Raymond James & Associates, Inc., and Raymond James Financial Services, Inc.

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